Wednesday, 24 October 2012

Targets for the near term

With the main indexes closing lower, and the VIX back in the 18s, the bears are starting to build some serious downside momentum. A test of the 200 day MA on the main indexes seems very likely.

Lets take a quick look at the weekly and monthly charts, rainbow style!

sp'weekly, rainbow

sp'monthly, rainbow


So...what should the bears be seeking as an exit target?

In the immediate term, the daily chart suggest the cycle low of 1397..and then the 200 day MA of 1374. Now, its important to keep in mind that the Dow' and the Nasdaq are already very close to taking out their 200 MAs.

My 'best guess' - after taking into account today's significant price action, we should see the sp' test the big 200 day MA of 1374. However, it will be tricky, since as noted, other indexes are already close to doing that. It is possible the SP' might not hit the 200 day MA, and then the other indexes start ramping back into early November.

As ever, good short-stops will be 'useful' in the days ahead for even the most reckless permabear.

I will close with this somewhat bearish thought. If we can indeed break the 200 day MA on the sp' @1374, then there is a 'small' chance of a brief intra-day panic move to 1325. A good 'wash-out' is something that I think this market needs. I have other thoughts on what might happen if we can break down to the low 1300s, but its been a long day.

The monthly chart is suggestive of sp'1200/1175 as a 'doomer' floor late this year, but we'll need to see at least an October close <1380 to have any possibility of that.

Looking ahead to Wednesday

I remain somewhat confidently short, seeking my next exit around sp'1395/1400. We have housing data at 10am, and the FOMC decision, although at least there is no QE3 to be concerned about.

*keep in mind that Q3 GDP data is due Friday, I think if it comes in bad (I'm seeking <0.5%), Mr Market is going to have to price in the threat of an imminent US recession, and then we could have that 'wash-out' move.

Goodnight from London